Question

Name the broad categories of transactions recorded in the 'current account' of the Balance of Payments Accounts

Answer 1

A balance of payments on current account is a statement of actual receipts and payments in the short period. It includes the value of imports and exports of both visible and invisible items.

1) Import and export of goods/visible items: Import of goods leads to an outward flow of foreign exchange and hence is treated as a negative item in the current account of the balance of payments. On the other hand, export of goods leads to an inward flow of foreign exchange and hence is treated as a positive item in the current account of the balance of payments.

2) Import and export of services/invisible items: Similarly, import of services leads to an outward flow of foreign exchange and hence is treated as a negative item in the current account of the balance of payments. On the other hand, export of services leads to an inward flow of foreign exchange and hence is treated as a positive item in the current account of the balance of payments. Services which are included in the current account of the balance of payments are (a) banking, shipping and insurance services, (b) investment income such as profits and dividends and (c) other miscellaneous services such as consultancy services and telephone services.

3) Unilateral transfers are also known as transfers for free such as gifts and grants from foreign governments. If a country provides grants or donation to the rest of the country leads to an outward flow of foreign exchange and hence is treated as negative items in the current account of the balance of payments. While a country receives grants or donation from rest of the country leads to an inward flow of foreign exchange and hence is treated as positive items in the current account of the balance of payments.